M/s. PDGD Investment & Trading Pvt. Ltd., Kolkata V. ITO, Ward-5(2), Kolkata, Kolkata

ITA 1881/KOL/2014

• Counselvise Citation: 188123514 RSA 2014
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 30-09-2014
• Court: TRIBUNAL
• Department Lawyers: SUCHETA CHATTOPADHYAY JCITSR
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH SMC KOLKATA [BEFORE HON BLE SHRI J. SUDHAKAR REDDY, AM ] ITA NO .1881 /KOL/2014 ASSESSMENT YEAR : 2006 - 07 ( A PPELLANT ) (RESPONDENT) M/S.PDGD INVESTMENT & - VERSUS - I.T.O., WARD - 5(2 ) , TRAD ING PVT.LTD., KO LKATA KOLKATA (PAN: AACCP 6416 G) FOR THE APPELLANT: SHRI ANIL KOCHAR, ADVOCATE FOR THE RESPONDENT: SMT.SUCHETA CHATTOPADHYAY ,JCIT,SR.DR DATE OF HEARING : 26 .08 .2015 . DATE OF PRONOUNCEMENT : 27.08.2015. ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - VI, KOLKATA DATED 18.08.2014 FOR A.Y.2006 - 07. 2. THE SOLE ISSUE THAT ARISES FOR MY ADJUDICATION IS DISALLOWANCE U/S 14A OF THE ACT. THE ASSESSEE RECEIVED DIVIDEND OF RS.34,445/ - . THE AO MADE A DISALLOWANCE OF RS.3,00,000/ - U/S 14A OF THE ACT. 3. AFTER HEARING THE RIVAL CONTENTIONS, I AM APPLYING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS HOLIM INDIA (P) LYD. IN ITA N OS.486/2014 AND 299/2014 JUDGMENT DATED 5 TH SEPTEMBER, 2014. THE RELEVANT PORTION OF THE JUDGMENT IS REPRODUCED HEREIN BELOW : - ON THE ISSUE WHETHER THE RESPONDENT - ASSESSEE COULD H AVE E A RN ED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED , Y ET S ECTIO N 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE M A DE , T H E R E ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECTL Y ON T HE ISS U E A ND AGAINST THE APPELLANT - REVENUE. NO CONTRARY DECISION OF A HIGH CO U RT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M / S. LAKHAN I MARKET ING INCL. , ITA NO . 970 / 2008 , DECIDED ON 02.04 . 2014 , MADE REFERENCE TO T WO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LI MITED , [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LI M I TED , [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WH E N N O EXEMPT INCOME WAS EARNED . THE SECOND DECISION IS O F THE GUJ A R AT HI G H COURT IN COM M IS S IONER OF INCOM E TA X - I VS. C O RR T ECB ENERGY (P.) LTD . [2014] 223 T AXMANN 1 30 (GUJ . ) . THE THIRD DECISION IS OF THE ALIAH A B A D HIGH COURT IN INCOME TAX APPEAL ITA NO. 1881/KOL/2014 M/S. PDGD INVESTMENT & TRADING PVT.LTD. A.YR. 2006 - 07 2 NO . 88 OF 2014 , COMMISSIONER OF INC O ME TA X (I I ) KANPUR , V S. M/S . SHIVAM M OTO RS (P) LT D. DECIDED ON 05 . 05 . 2014 . I N T H E S A ID D ECIS I O N I T H AS B EE N H E L D : ' AS REGARDS T HE SECOND QUESTION , SECTION 1 4 A OF TH E ACT PROVIDES THAT FOR THE PURPOSES OF C OMPUTING TH E TOTAL INCOME UNDER THE C HAPTER , NO DEDUCTION SHALL B E ALLOW E D IN RESPECT OF EX PENDITUR E IN C U R R E D B Y TH E ASSESSEE IN RELATION TO INCOM E W HICH DOES NOT FORM P A RT OF T HE TOTAL INCOME UNDER THE A CT . HEN CE , WHAT SEC TION 1 4 A PROVIDES IS THAT IF THERE IS AN Y INCOM E WHICH DO E S NOT FORM PART OF THE INCOME UNDER THE A CT , THE EXP E NDITU RE WHICH IS INC U RRED FOR EAR N I N G TH E I NCOME IS NOT AN A LL OWAB L E DEDUCTION . FOR THE YEAR IN QUE STION , THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED AN Y TA X FR EE INCOME . HENCE , IN THE ABSENCE OF ANY TAX FREE IN C OME , TH E CORR E SPONDING EXPENDITURE COU L D NOT B E W ORKED OUT FOR DISALLOWANCE . TH E VIEW OF THE CIT (A) , W HI C H HAS B EE N AFFIRM E D B Y THE TRIBUNAL , HENCE DOES NOT GIV E R I S E T O AN Y SUBSTANTIAL QUESTIO N OF LAW. HENCE , THE DELETION OF TH E DISALLOWANCE OF RS . 2 , 03 , 7 52 / - MADE B Y TH E A SS E SSING OFFICER WAS IN ORDER ' . 1 5 . IN COME EXE MPT UND E R SECT I O N 10 IN A PARTICULAR ASSESSMENT Y E A R , , MA Y N OT HAVE BEE N EXEMPT EAR LI ER AND CA N BECOM E TAX A BLE IN FUTU RE YEARS . FURTHER , WHETHER INCOME EARNED IN A SUBSEQUENT Y EAR WOULD OR WOULD NOT BE TAXABLE , MA Y DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT Y EAR . FOR E XA MPL E , LON G T E RM CA PI TAL GAIN ON SALE O F SHARES IS PRESE N T L Y NOT TAXABLE WHERE S ECURIT Y TR A N SA CTI O N T A X HAS BEEN PAID , BUT A PRIVATE SALE OF SHARES IN AN OFF M A RKET TRANS AC TION A TTR A CTS CAPIT A L GAINS TA X . IT IS A N UNDISPUTED POSITI O N TH A T R ES P O ND E N T AS SESSEE IS AN INV ESTMENT COMP A N Y AND HAD IN V ESTED B Y PURCH AS IN G A S UBSTANTIAL NUMBER OF SH A RES AND THEREB Y SECURIN G RI G HT T O M A N AGEME N T . POSSIBILIT Y OF SALE OF SH A RES BY PRIVATE PLACEMENT ETC . CANNOT BE RUL E D O UT A ND IS NOT AN IMPROBABILIT Y. DI V IDEND M AY OR M AY N OT B E DE C L ARED . DI V IDEND I S DECLARED B Y THE COMP A N Y A ND ST RICTL Y IN L EGAL SENSE , A S HAREHOLDER HAS NO CONTROL AND C A NNOT INSIST ON P AY M E NT O F DI V ID E ND . WH E N DE C LARED , IT IS SUBJECTED TO DI V IDEND DI S TRIBUTION T AX . 1 6 . WHAT IS ALSO NOTICEABLE IS TH A T THE ENTIRE OR W HOL E EX P E NDI TURE HAS B EE N DI S ALLO W ED A S IF THERE WAS NO E X PENDITU RE IN C UR RED B Y THE R E SPONDENT - ASSESSEE FOR CONDUCTIN G BU S INE S S . THE CT T( A ) H AS POSIT I VE L Y HELD THAT THE BUSINESS W AS SET UP A ND HAD COMMENC E D . T H E SA I D F IND I N G I S ACC EPTED . T HE R ES PONDENT - ASS ESSE E , T HER EFO R E , H A D TO IN C U R EXPENDITURE FO R THE BU S INE S S IN THE FORM OF IN VES TMENT IN S H A RES O F CE M E NT CO M PANIES AND TO FURTHER EXPAND AND CO N SOLIDATE THEIR BUSINESS . E XPENDITURE HAD T O BE ALSO INCURRED TO PROTECT THE IN V ESTMENT M A DE . TH E G ENUIN E N ESS OF T H E S AID EXPENDITURE AND THE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBT ED BY THE ASSESSING OFFICER AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A). BY APPLYING THE PROPOSITION LAID DOWN IN THE FACTS OF THE CASE, I HOLD THAT THE MAXIMUM DISALLOWANCE IN THIS CASE CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME RECEIVED BY THE ASSESSEE I.E. RS.34,445/ - . HENCE, I RESTRICT THE DISALLOWANCE TO RS.34,445/ - AND ALLOW THE BALANCE IN FAVOUR OF THE ASSESSEE. ITA NO. 1881/KOL/2014 M/S. PDGD INVESTMENT & TRADING PVT.LTD. A.YR. 2006 - 07 3 4. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNC ED IN TH E COURT . SD/ - [ J. SUDHAKAR REDDY ] ACCOUNTANT MEMBER DATE: 27.08.2015. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . M/S.PDGD INVESTMENT & TRADING PVT. LTD., C/O S.L.KOCHAR, ADVOCATE, 86, CANNING STREET, KOLKATA - 1. 2 I.T.O., WARD - 5(2 ), KOLKATA. 3 . THE CIT - I I , KOLKATA 4. THE CIT(A) - VI , KOLKATA. 5 . DR , KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES